In 2013, Matthew Wright made a timely career shift when he left his role of vice chancellor for investments and chief investment officer at Vanderbilt University in Nashville, Tennessee.
Wright struck out on his own to found Disciplina Group, which is now a $1.6 billion OCIO that works exclusively with non-profits such as community-based, cultural arts, faith-based, higher education, healthcare and social justice organizations.
He harnessed a time-tested skillset gleaned in leading a 20-person team at Vanderbilt’s Office of Investments, where he was responsible for coordinating with the Investment Committee of the Board of Trust and investment oversight of the university’s $3.7 billion long term investment portfolio, which included the university endowment.
Prior to joining Vanderbilt University in 2007, Matthew was the director of investments at Emory University for over six years. While at Emory his primary duties included implementation of asset allocation policies, investment strategy, manager selection, internal trading and portfolio management within the endowment.
Prior to joining Emory, Matthew had stints at Bank of America Capital Management’s Quantitative Strategies Group as a portfolio manager and Xerox Corporation’s Trust Investments department as an investment analyst.
He is also a member of the CFA Institute, a member of the Board of Regents and Board of Trustees of Seton Hall University, where he chairs the Investment Committee and member of the Executive Committee. He is also an investment committee member at the Jack Kent Cooke Foundation.
At Alternatives Watch, we were interested in catching up with Wright to learn about how OCIO services have served allocators as of late and what trends he is watching currently.
Barreto: Thanks for agreeing to share your insights with Alternatives Watch readers, Matthew. Given that you were the first African-American CIO of a major university endowment, what is your view around the question of diversity, whether we are talking about internal teams or investment allocations?
Wright: At Disciplina, we believe our diverse team and perspectives afford us the opportunity to identify high quality and talented firms, which happen to be diverse owned. Our approach also removes some of the classic barriers to entry for considering diverse investment managers. For instance, we do not require a 10-year track record or dismiss managers below a fixed AUM, for example.
Barreto: What are some of the barriers you see diverse emerging managers face as they launch?
Wright: There’s plenty of diverse talent out there.
Economics are a big factor as there are three ways to pay for the launch of a new asset management firm. You can fund it yourself, you can combine friends and family money or you can find a seed entity. For a large swath of female and diverse-owned fund entrepreneurs, self-funding is a challenge that extends beyond an annual paycheck or personal savings. Systemic barriers that have hindered generational wealth for these individuals is a root cause, along with other factors such as family commitments, narrow networks and limited sponsorship or mentors. Fortunately, there is a new generation of firms and individuals that recognize and address these hurdles increasing the opportunity to overcome these barriers.
Infrastructure is another constraint after economics as every component of a new firm costs money – cybersecurity, a Chief Compliance Officer day one, audit and tax, great talent, office space, insurance, computer equipment, legal, fund administration, and the list goes on. Fortunately, our team’s decades of evaluating investment managers have provided us insight into this area.
Since well-funded start-up asset managers have top notch resources in all these areas right out of the gate, and the marketplace has assumed that all firms should have these resources day one, versus planning and scaling into these areas organically.
Emerging asset managers that can’t check all the expected infrastructure boxes will come up against engrained perceptions of what an asset management firm should look like, creating fundraising and other potential hurdles. Our process is mindful of these constraints, contextualizes and evaluates firms on their business plans versus their day one resources. Increasingly, some allocators are lessening their expectations around these barriers to entry, but the bar remains high. Timing is also paramount.
Barreto: Are some firms in the asset management industry able to implement more socially conscious investment programs?
Wright: The challenge in this area lies with expressing a view versus sincere implementation. Recognizing that performance and fiduciary duties should never be compromised, those who adopt these programs must be intentional to act when the opportunity presents itself (new hires, procurement, training, etc…) Instead, we oftentimes witness statements without true progress or accountability. Investors interested in this area should be open to fostering new partnerships and relationships that express these values across their team members and culture.
Barreto: What is happening in the OCIO marketplace that you inhabit?
Wright: Sure. The OCIO market is a broad space with various providers and perspectives. Often, clients are challenged in understanding the differences and nuances between the various types of OCIO firms, as there are a number of underlying business models out there.
Some firms are independent, some publicly owned or consultant driven. Some OCIOs specialize in one type of investor, like pension funds, Taft-Hartley plans or endowments specifically.
OCIOs may also distinguish themselves according to the asset pools they focus on traditional, alternative investments, or ideally both.
Backgrounds differ leading to different types of investment sourcing.
A major factor is whether the firm takes a broad approach across strategy buckets for many clients or affords their clients a bespoke approach with access to high quality capacity constrained investment managers through a high touch service model. This may or may not include governance and operational resources that support their clients’ investment initiatives.
To use an analogy, when choosing a restaurant … The one you select depends on the occasion and circumstances. If you are on a road trip with the family. You will probably select a fast-food chain. If it’s a special occasion like a birthday, anniversary or other celebration a more intimate fine dining experience at a local restaurant may be more suitable. The offerings within the OCIO marketplace parallel this continuum and it is incumbent upon each organization to decide what is the best offering for their institution. Is it a low fee, general offering that includes custody or premium offering with customization and high-touch service?
Barreto: Can you outline the broader investment opportunities that interest you at this moment in the cycle?
Wright: We manage client portfolios using a multi-asset class and multi-manager framework. Within each of our client portfolios there are three elements: 1) growth component that includes global equities and private market investments, 2) diversifiers that include fixed income and absolute return strategies, and 3) inflation protection (i.e. real assets).
We are seeing a number of opportunities within private markets with proven firms with limited capacity for new LPs. We are also considering tactical opportunities within global equities as we face the headwinds of a rising rate environment. Fixed income has been problematic for this very same reason. So, we have been very thoughtful and somewhat tactical in our implementation within this area augmenting it with absolute return strategies with limited sensitivity to interest rates, credit or equity markets. Real assets are a key area at the moment. Although, all of our clients have strategic allocations within this area we seek to ensure broad diversification that spans real estate, diversified commodities and other components of inflation protection.
We implement these views through passively managed ETFs, active managers and private fund vehicles.
Barreto: Fixed-income portfolios are a challenging space right now. What are you advising clients to do right now?
Wright: Classic fixed income strategic allocations have a low (perhaps negative) expected return at this time, but such investments create liquidity for spending distributions, cap calls, etc. It can also provide a tail risk hedge for client portfolios through long duration government bonds.
Although, people are concerned about interest rates, fixed income is an important ballast when equity markets correct. Since fixed income spans a broad spectrum, there are opportunities to navigate what is anticipated to be negative “real” returns in all cases. This includes short-term credit, structured credit and municipal bonds. We also seek to incorporate hedge fund strategies that are non-directional and absolute return oriented to offset lower expected returns from fixed income.
Barreto: What else interests you at this time?
Wright: We’re seeing a marked increase of client interest in diverse-owned investment firms. On average, diverse investment talent makes up 25% of our client portfolios already. Although sourcing can be tough in some asset classes, I’m encouraged to see that there is a growing ecosystem. Based upon the nature of their strategy or recent launch, some firms may require more due diligence.
Regardless, we are looking for quality teams, with differentiated strategies operating with an institutional infrastructure. Expression of interest and demands from clients and prospective clients in these areas increased after last summer.
Barreto: How do you as an OCIO define a diverse manager?
Wright: We have definitions, clients have others.
Diverse manager definitions can span a broad spectrum as well, depending on the client. We define diverse managers as those with economic ownership of fifty percent or more by diverse individuals in terms of gender, race, ethnicity or veteran status.
Others define it as underrepresented groups, team composition or different ownership thresholds. Economic ownership definitions are common, leading allocators to select general partner entities with 33% or 50% people of color or women at the partner level.
The definitions we’ve seen are somewhat wide ranging, not unlike ESG or Impact Investing which can differ by organization. Some asset managers are just looking to measure ESG and others are looking to gauge how every investment is making a very specific difference.
Barreto: What’s on your mind with respect to markets more broadly these days?
Wright: We are in interesting times, given the maturation of economic policy and data.
Regulators are mindful of positive markets being a good thing, and they are more prepared than ever to deal with challenges should they arise. We have a more informed support system than we had before with respect to federal and monetary policy. We can’t spend away our future forever, but there are more effective controls in place, combining policy and technology, for dealing with issues like inflation, the unexpected or inevitable market downturns.
Barreto: Thank you for sharing your views with our readers, Matthew.
Wright: Thank you for having me, Susan.